HSBC Holdings plc Interim Report HSBC Holdings plc Interim Report 2007 HSBC Holdings plc 8 Canada Square, London E14 5HQ, United Kingdom Telephone: 44 020 7991 8888 Facsimile: 44 020 7992 4880 www.hsbc.com HSBC HOLDINGS PLC Interim Report 2007 Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world. Its international network comprises over 10,000 properties in 83 countries and territories in Europe; Hong Kong; Rest of Asia-Pacific, including the Middle East and Africa; North America and Latin America. With listings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares in HSBC Holdings plc are held by about 200,000 shareholders in over 100 countries and territories. The shares are traded on the New York Stock Exchange in the form of American Depositary Shares. HSBC provides a comprehensive range of financial services to more than 125 million customers through four customer groups and global businesses: Personal Financial Services (including consumer finance); Commercial Banking; Corporate, Investment Banking and Markets; and Private Banking. Contents Page Page Financial Highlights ........................................ 1 Financial Statements ....................................... 132 Group Chairman’s Statement ........................ 4 Notes on the Financial Statements1 ................ 136 Group Chief Executive’s Review ................... 6 Review Report of the Auditors ....................... 156 1 Business Review ............................................. 11 Additional Information ................................... 157 1 Financial Review ............................................ 73 Glossary of Terms ............................................ 169 1 The Management of Risk .............................. 93 Index ................................................................. 170 Board of Directors and Senior Management ................................................. 129 1 Supplementary contents are provided on the referenced pages. Certain defined terms Unless the context requires otherwise, ‘HSBC Holdings’ means HSBC Holdings plc and ‘HSBC’ means HSBC Holdings together with its subsidiaries. Within this document, the Hong Kong Special Administrative Region of the People’s Republic of China is referred to as ‘Hong Kong’. When used in the terms ‘shareholders’ equity’ and ‘total shareholders’ equity’, ‘shareholders’ means holders of HSBC Holdings ordinary and preference shares classified as equity. The Interim Report 2007 of HSBC Holdings has been prepared in accordance with the requirements of English law, and liability in respect thereof is also governed by English law. In particular, the liability of the Directors for these reports is solely to HSBC Holdings. HSBC’s interim Financial Statements and Notes thereon, as set out on pages 132 to 155, have been prepared in accordance with International Accounting Standard (‘IAS’) 34 ‘Interim Financial Reporting’. HSBC prepares its annual consolidated financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as endorsed by the European Union (‘EU’). At 30 June 2007, there is no difference between IFRSs as endorsed by the EU and IFRSs as issued by the International Accounting Standards Board (‘IASB’) in terms of their application by HSBC. HSBC uses the US dollar as its presentation currency because the US dollar and currencies linked to it form the major currency bloc in which HSBC transacts its business. Unless otherwise stated, all figures are presented in this document on a consolidated basis. When reference is made to ‘underlying’ or ‘underlying basis’ in tables or commentaries, comparative information has been expressed at constant currency (see page 3) and adjusted for the effects of acquisitions and disposals. HSBC HOLDINGS PLC Financial Highlights For the half-year • Total operating income up 23 per cent to US$42,092 million (US$34,334 million in the first half of 2006). • Group pre-tax profit up 13 per cent to US$14,159 million (US$12,517 million in the first half of 2006). • Profit attributable to shareholders of the parent company up 25 per cent to US$10,895 million (US$8,729 million in the first half of 2006). • Return on average invested capital of 18.4 per cent (17.2 per cent in the first half of 2006). • Earnings per share up 22 per cent to US$0.95 (US$0.78 in the first half of 2006). Dividends and capital position • Tier 1 capital ratio of 9.3 per cent and total capital ratio of 13.2 per cent. • Second interim dividend for 2007 of US$0.17 per share which, together with the first interim dividend for 2007 of US$0.17 per share already paid, represents an increase of 13 per cent over the first and second interim dividends for 2006. Cautionary statement regarding Written and/or oral forward-looking statements forward-looking statements may also be made in the periodic reports to the US Securities and Exchange Commission (‘SEC’) on This Interim Report 2007 contains certain forward- Form 20-F, Form 6-K, summary financial statements looking statements with respect to the financial to shareholders, proxy statements, offering circulars condition, results of operations and business of and prospectuses, press releases and other written HSBC. These forward-looking statements represent materials and in oral statements made by HSBC’s HSBC’s expectations or beliefs concerning future Directors, officers or employees to third parties, events and involve known and unknown risks and including financial analysts. uncertainty that could cause actual results, performance or events to differ materially from those Forward-looking statements involve inherent expressed or implied in such statements. For risks and uncertainties. Readers should be cautioned example, certain of the market risk disclosures, some that a number of factors could cause actual results to of which are only estimates and, therefore, could be differ, in some instances materially, from those materially different from actual results, are anticipated or implied in any forward-looking dependent on key model characteristics and statement. Forward-looking statements speak only as assumptions and are subject to various limitations. of the date they are made, and it should not be Certain statements, such as those that include the assumed that they have been reviewed or updated in words ‘potential’, ‘value at risk’, ‘estimated’, the light of new information or future events. Trends ‘expects’, ‘anticipates’, ‘objective’, ‘intends’, and factors that are expected to affect HSBC’s ‘plans’, ‘believes’, ‘estimates’, and similar results of operations are described in the ‘Business expressions or variations on such expressions may Review’, the ‘Financial Review’, and ‘The be considered ‘forward-looking statements’. Management of Risk’. A more detailed cautionary statement is given on pages 4 and 5 of the Annual Report and Accounts 2006. 1 HSBC HOLDINGS PLC Financial Highlights (continued) Profitability and balance sheet data Half-year to 30 June 30 June 31 December 2007 2006 2006 US$m US$m US$m For the period Total operating income .................................................................................... 42,092 34,334 35,736 Profit before tax ............................................................................................... 14,159 12,517 9,569 Profit attributable to shareholders of the parent company .............................. 10,895 8,729 7,060 Dividends ......................................................................................................... (6,192) (5,270) (3,499) At the period-end Total equity ...................................................................................................... 126,491 107,370 114,928 Total shareholders’ equity ............................................................................... 119,780 101,381 108,352 Capital resources1 ............................................................................................ 137,042 116,636 127,074 Customer accounts ........................................................................................... 980,832 833,742 896,834 Total assets ...................................................................................................... 2,150,441 1,738,138 1,860,758 Risk-weighted assets ....................................................................................... 1,041,540 872,893 938,678 US$ US$ US$ Per ordinary share Basic earnings .................................................................................................. 0.95 0.78 0.62 Diluted earnings ............................................................................................... 0.94 0.77 0.62 Dividends ......................................................................................................... 0.53 0.46 0.30 Net asset value at period end ........................................................................... 10.10 8.71 9.24 Capital and performance ratios (annualised) % % % Capital ratios Tier 1 capital .................................................................................................... 9.3 9.4 9.4 Total capital ..................................................................................................... 13.2 13.4 13.5 Performance ratios Return on average invested capital2 ................................................................. 18.4 17.2 12.8 Return on average total shareholders’ equity3 ................................................